Nigeria Tightens Free Zone Rules: The 75/25 Rule, the End of Circular Concessions and Digital Free Zones

• The aim: stop the diversion of free zone goods into the Nigerian Customs Territory while operators keep export incentives, which disadvantages manufacturers outside the zones that pay full duties and taxes.

• The 75/25 rule: zone enterprises export at least 75% of output and sell no more than 25% domestically. Domestic sales are subject to normal tax and customs law, and the profit-tax exemption depends on meeting the threshold. From 1 January 2028, profits on domestic sales become fully taxable under the Nigeria Tax Act 2025.

• Clear roles: NEPZA and OGFZA handle licensing and oversight, the Nigeria Revenue Service handles tax, and the Nigeria Customs Service handles customs control, valuation, classification and enforcement.

• No reliance on old concessions: administrative circulars cannot amend Acts, so conflicting past concessions cannot be relied on.

• Targeted practices: diversion of goods, related-party mispricing, under-reported domestic sales and disguised zone status.

• Digital Free Zones: recognised for the first time, with an Innovator Licence and proposed sandbox licences. Itana is the first licensed digital free zone.

• Still open: treatment of existing investments and transition, phasing of the 75/25 rule, joint customs inspections, FX and tax reporting, and treatment of services inside the zones.

In mid-to-late September 2026, Minister of Industry, Trade and Investment Dr Jumoke Oduwole set out a revised regulatory framework for Nigeria's Special Economic Zones, which are mainly export processing zones and oil and gas free zones. Its central purpose is to stop operators from diverting goods into the domestic market while keeping incentives that were granted to promote exports.

The problem. According to the Minister, goods produced in free zones were increasingly being sold into the Nigerian Customs Territory while operators continued to enjoy fiscal incentives. That puts manufacturers outside the zones, who pay full duties and taxes, at a competitive disadvantage. The reform also follows recent Nigeria Customs Service enforcement actions over goods admitted under free zone concessions and later allegedly diverted into the domestic market.

The process:

In total, the framework follows 19 months of consultation with agencies, lawmakers and the private sector.

The instruments. Three draft instruments anchor the reform:

1. the NEPZA Regulations and Operational Guidelines for Free Zones in Nigeria;

2. the Nigeria Export Processing Zones (Domestic Sales, Fiscal Alignment and Customs Treatment) Regulations, 2026; and

3. equivalent Domestic Sales, Fiscal Alignment and Customs Treatment Regulations for oil and gas free zones.

The message to investors. The Minister stressed that the reform is not intended to dismantle the free zone regime or withdraw lawful incentives. In her words, the choice before Nigeria is not between preserving the free zones scheme and dismantling it. She pointed to anchor investments such as the Dangote Industries Free Zone, home to the Dangote refinery and a large fertiliser complex, as examples of what the regime should continue to support.

1. The 75/25 rule, applied clearly

The framework reinforces the structure under which free zone enterprises export at least 75% of output and sell no more than 25% into the Nigerian Customs Territory. According to the draft Domestic Sales Regulations, an enterprise qualifies for tax exemption on profits only where at least 75% of its annual turnover comes from exports. Domestic sales are treated under ordinary Nigerian tax and customs law: customs duty, import VAT and other charges apply when goods cross from the zone into the customs territory. From 1 January 2028, profits from sales into the customs territory become fully taxable, whatever the percentage.

In plain terms: a zone enterprise can still sell part of its output in Nigeria, but those sales no longer carry free zone tax treatment. If domestic sales grow beyond a quarter of turnover, the profit exemption itself is at risk.

2. One function per agency

The guiding principle that emerged from consultations is "one authority, one visit, one record", meant to reduce overlapping inspections and reporting.

3. Old concessions cannot override Acts

The Minister made a point with direct legal consequences: administrative circulars cannot amend Acts of Parliament. Past concessions that conflict with primary legislation, such as the Nigeria Tax Act 2025 or the Customs Act, cannot be relied on. For licensees who built business models on circulars or other administrative concessions, this is the most important signal in the reform.

4. Practices targeted

5. Digital Free Zones and new licence types

The revised NEPZA regulations will, for the first time, formally recognise Digital Free Zones and Digital Special Economic Zones. These operate on a platform rather than at a physical site, so businesses can participate without a conventional physical presence. NEPZA has already licensed Itana, at Alaro City in Lagos, as Nigeria's first digital free zone, with backing from the Africa Finance Corporation. The draft also creates:

• an Innovator Licence for businesses in sectors where regulation is still developing; and

• proposed sandbox licences, allowing controlled testing of new business models.

The reform sits at the intersection of several statutes written at different times for different purposes.

The hierarchy point. The Minister's statement that administrative circulars cannot amend Acts reflects a basic principle: subsidiary instruments and circulars must conform to primary legislation. Where the NTA 2025, a later Act of the National Assembly, narrows the NEPZA Act's exemptions, the later and more specific statute generally prevails. Circulars or concessions granted on the earlier, broader reading cannot override it. The draft Domestic Sales Regulations are themselves issued under both the NEPZA Act and the NTA 2025, to bring the two into line.

The industry's objection. The Nigeria Economic Zones Association has argued that the tax reforms made fundamental and adverse changes to the free zone authorities' enabling Acts. It says this contradicts earlier assurances and risks raising costs in the customs territory. That dispute over policy, and possibly legality, sits beneath the regulatory reform.

A dated foundation. The NEPZA Act dates from 1992 and was designed for physical, export-only enclaves. Commentators argue that a modern Special Economic Zones Act, covering domestic-market access, services, digital zones and current tax rules, will eventually be needed. Regulations can clarify the 1992 Act, but cannot rewrite it.

The regulations are drafts, not yet in force. Issues raised at the 17 September stakeholder engagement were carried into the drafting process. Five remain open, and each could change the reform's impact substantially:

The regime also needs to avoid multiple regulatory interfaces, while keeping NEPZA and OGFZA as coordinating authorities within their statutory mandates. How the final text divides power between the four agencies will decide how much day-to-day friction operators face.

1. Export-linked incentives and WTO subsidy rules

A profit-tax exemption that depends on exporting at least 75% of output is, in WTO terms, an incentive contingent on export performance. The WTO Agreement on Subsidies and Countervailing Measures generally prohibits export subsidies, but it exempts a group of lower-income developing members listed in its Annex VII, among them Nigeria, while their income stays below a defined threshold. Two practical consequences follow:

• Nigeria's export-linked zone incentives are less exposed to WTO challenge than they would be for a higher-income member.

• Importing countries can still investigate subsidised goods and impose countervailing duties if they injure domestic industry. Clearer rules that tie incentives to genuine exports, and tax domestic sales normally, reduce the risk that zone exports are attacked as unfairly subsidised.

2. Regional trade: AfCFTA and ECOWAS

Free zone output raises a known problem in regional agreements: whether goods made in a zone with duty-free inputs should get preferential, duty-free access to partner markets. The treatment of special economic zone goods has been a contested issue in African Continental Free Trade Area rules-of-origin negotiations, and regional trade rules have long treated zone output cautiously. A cleaner Nigerian regime, with transparent records of what is exported and sold domestically, strengthens Nigeria's position in those negotiations and supports zone exporters' origin claims.

3. Domestic fairness: the level playing field

The core trade-policy argument for the reform is internal. When duty-free zone goods leak into the domestic market, they compete unfairly with Nigerian manufacturers that pay full duties and taxes. Enforcing the 75/25 limit, valuation and classification at the zone boundary restores parity.

4. Investor protection and legitimate expectations

The biggest legal risk to the reform is how it treats existing licensees. Investors who entered under the NEPZA Act's broad exemption language may argue they had a legitimate expectation that the regime would remain stable:

• Domestic law: the Nigerian Investment Promotion Commission Act provides investment guarantees, and Section 44 of the Constitution protects property. Whether tax changes engage these protections depends on the facts, but abrupt changes without transition are more vulnerable.

• Investment treaties: where an investor's home state has a bilateral investment treaty with Nigeria, fair and equitable treatment clauses can be invoked against regulatory changes that frustrate specific assurances.

This is why the open questions on transition and phasing matter legally, not just commercially. A clear transition period and grandfathering for compliant investments would significantly reduce dispute risk.

Free zone enterprises selling into Nigeria

The worry: losing the profit-tax exemption, and facing full duty and VAT on every domestic sale. If domestic sales exceed 25% of turnover, the exemption on profits is at risk; from 2028, all profits from domestic sales are taxable regardless. What to do: measure the export-to-domestic split precisely, by value and by financial year. Model the tax cost under the 75/25 rule and the 2028 sunset. Consider restructuring domestic-market operations into a separate customs-territory entity. Argue for phasing and transition during drafting.

Enterprises relying on past concessions or circulars

The worry: the Minister has said circulars cannot override Acts, so concessions that conflict with the NTA 2025 or the Customs Act may not protect you on audit. What to do: inventory every concession, letter or circular your model relies on, and test each against the primary statutes. Where there is a gap, seek legal advice on exposure for past periods and on any treaty or investment-law protection.

Groups with related-party transactions across the zone boundary

The worry: mispricing between zone entities and customs-territory affiliates is a named target. The NRS will look at transfer pricing; Customs will look at valuation. What to do: align transfer pricing documentation with customs values, and make sure intercompany pricing reflects arm's-length terms and genuine functions in the zone.

Businesses with thin substance in the zone

The worry: firms that really operate in the customs territory but present themselves as zone enterprises are a stated target. They risk loss of status and back taxes. What to do: test whether production, staff and decision-making genuinely sit in the zone.

Manufacturers outside the zones

The gain: the reform aims directly at the unfair competition you face from diverted duty-free goods. What to do: engage in the consultation with evidence of diversion and price undercutting, and support strong customs exit controls.

Zone developers and operators (for example Lekki, Dangote Industries, oil and gas free zones)

The worry: tenants may relocate or restructure if domestic-market access becomes less attractive. What to do: help tenants map their exposure, and push for clear transition terms and a working "one authority, one visit, one record" model.

Tech and digital businesses

The opportunity: Digital Free Zones, Digital SEZs, the Innovator Licence and sandbox licences open free zone status to platform-based and emerging-sector businesses without a physical site. The worry: how services and digital output will be measured against the 75/25 rule, and how the NTA's taxation of services consumed in the customs territory will apply. What to do: follow the services and FX rules closely before restructuring around a digital zone licence.

Foreign investors

The worry: a perceived erosion of incentives promised under the 1992 regime. What to do: review investment-treaty coverage and any stabilisation commitments, and engage through NEZA and chambers on grandfathering.

Customs brokers, logistics and freight operators

The worry: stricter exit procedures, valuation and classification checks at the zone boundary, and liability for documentation errors. What to do: tighten processes for goods moving from zones into the customs territory, and track the final customs exit procedures and any joint inspection model.

The NRS, Customs, NEPZA and OGFZA

The reform asks four agencies to stay in their lanes. The success test is whether they coordinate rather than compete, and whether compliant investors experience fewer, not more, regulatory touchpoints.

What is the 75/25 rule for Nigerian free zones? Free zone enterprises should export at least 75% of their output and sell no more than 25% into the Nigerian Customs Territory. Under the Nigeria Tax Act 2025 and the draft regulations, the profit-tax exemption depends on meeting that threshold, and domestic sales are subject to ordinary tax and customs law.

Are the new free zone rules in force? No. They are draft regulations still being finalised after the 17 September 2026 stakeholder engagement and a drafting retreat.

Can free zone companies rely on old concessions? The Minister has said administrative circulars cannot amend Acts of Parliament, so concessions that conflict with primary legislation cannot be relied on.

Which agency does what? NEPZA and OGFZA handle licensing and operational oversight, the Nigeria Revenue Service handles tax, and the Nigeria Customs Service handles customs control, valuation, classification and enforcement.

What are Digital Free Zones? Free zones that operate on a digital platform rather than a physical site. The revised NEPZA regulations will recognise them, together with an Innovator Licence and proposed sandbox licences. NEPZA has licensed Itana as the first.

What happens in 2028? Under the Nigeria Tax Act 2025, from 1 January 2028 the profits of zone entities from sales into the customs territory become fully taxable, regardless of percentage, unless the President defers the date.